Bitcoins soar to heavens in value, but take a staggering toll on earthly environment

The jump in value of bitcoins has been nothing short of precipitous: A bitcoin that started 2017 worth $1,023 was trading at $16,999 at 2 p.m. Thursday. The currency has climbed more than $7,000 just in the past week.

But for those who have never really understood the workings of bitcoins, which don’t exist in physical form, here’s another confounding fact: Critics say the staggering amount of energy now consumed by the bitcoin network has surpassed that used by small nations like Estonia and Iceland.

The power-hungry swarms of computers that sustain the digital currency and ensure all transactions are settled successfully siphon off an ever-growing amount of electricity, leaving behind a heavy carbon footprint.

A debate about bitcoin’s environmental impact comes as the bitcoin passes milestone after milestone. Two Chicago exchanges begin trading bitcoin futures this month, giving Wall Street traders a way to bet on prices and hedge against volatility. The move signals bitcoin’s rising institutional legitimacy.

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While traders haggle over whether the frothy rise in bitcoins’ value is a bubble or just the beginning of a long ascent, a fierce debate has also broken out on tech blogs and on Twitter over whether the soaring energy usage required by the currency is an impediment to its success.

It’s absolutely an issue that should raise alarm bells with people.

Garrick Hileman, academic at University of Cambridge

“It’s absolutely an issue that should raise alarm bells with people,” said Garrick Hileman, an economic historian at the University of Cambridge in England. The growing energy requirements are “not sustainable over the medium term.”

One lightning rod for the debate is a 28-year-old Dutch market risk analyst, Alex de Vries, who writes a blog at Digiconomist.net that indexes the daily energy that he estimates is consumed by the bitcoin network.

“You can measure bitcoin energy consumption in multiple ways but it’s not going to look pretty no matter how you do it,” de Vries said in a Skype interview.

No one knows for sure how many hundreds of thousands of computers are harnessed into the bitcoin network but what experts calculate are the rising algorithmic computations that unfold in the bitcoin system, and the likely computing power needed to make them work.

On Thursday, de Vries added a carbon footprint index to his blog, saying that each bitcoin transaction emits about 273 pounds of carbon dioxide pollutants. That would be the equivalent of more than 13 gallons of gasoline.

The criticisms lodged by De Vries of bitcoin’s voracious energy appetite have generated fierce debate in some corners of the bitcoin realm. Many dispute his assessment that power consumption could be the digital currency’s undoing.

The growth in Bitcoin mining energy consumption will eventually slow.

Sveinn Valfells, Icelandic physicist

“The growth in bitcoin mining energy consumption will eventually slow,” said Sveinn Valfells, an Icelandic digital currency expert who has graduate degrees in economic systems and physics from Stanford and Boston University.

In his own estimate of bitcoin energy consumption this week, Valfells said bitcoin mining – in which processor banks try to solve computationally difficult puzzles to earn bitcoins while maintaining the network’s global ledger of transactions – uses energy “comparable to the total electric power of the state of Massachusetts.”

But in an email, Valfells said bitcoin energy consumption may moderate, then fall.

“Improved and greener power generation capability and battery capacity will make power more abundant and cheap,” Valfells said, and computing processor efficiency will improve. “Ultimately, the current silicon-based processors will be replaced by more efficient platforms, possibly graphene or quantum computers, which should significantly reduce processor power consumption.”

So is bitcoin processing a good use of energy?

“Yes, as long as bitcoin is valued as a medium of exchange and store of value, bitcoin mining is a good use of energy,” he said.

Much of the computer power sustaining bitcoin occurs at massive complexes – or farms – in rural China running on electricity from coal-fired generating plants in Sichuan and Inner Mongolia. Reporters from Quartz and Bloomberg visited one of the massive farms in August, and said it had eight warehouses containing 25,000 processing machines, or about four percent of the global bitcoin network.

As bitcoin prices soar, more processing machines are likely to be added.

The complexes earn money by solving cryptographic puzzles that permit bitcoin transactions in a block, vying for a block reward that is currently 12.5 bitcoins, or $212,487 at the valuation at 2 p.m. Thursday. Competition is fierce between mining operations.

All of these miners are competing with each other to see who can solve the puzzle first.

Garrick Hileman, expert on digital currency at University of Cambridge

“All of these miners are competing with each other to see who can solve the puzzle first,” said Hileman.

Individuals with powerful computers once mined bitcoins, but after the creation in 2013 of application-specific integrated circuit, or ASIC, chips that could mine bitcoin 50 times faster, specialized farms with massive banks of ASIC processors have arisen, mostly in China but also in other nations with low, or subsidized, energy costs.

As concern rises about the energy consumption of such farms, Hileman said scientists are pondering solutions to slash the energy consumption without endangering the underlying algorithmic security that has ensured that bitcoin hasn’t been hacked since inception in 2009.

“There’s a lot of brain power being focused on coming up with more sustainable security algorithms,” Hileman said.

Correction: The text has been changed to reflect the fact that Garrick Hileman, an economic historian with the University of Cambridge, is not affiliated with the Centre for Alternative Finance.